China-Japan Ministers Hold ‘Severe’ Talks as Spat Damages Trade

The foreign ministers of China and Japan held “severe” talks in New York in an attempt to ease rising tensions over a territorial dispute that is hurting trade between Asia’s two biggest economies.

China’s Yang Jiechi met with Japanese counterpart Koichiro Gemba on the sidelines of the United Nations General Assembly yesterday. Yang said China “will not tolerate” Japan’s claims to islands in the East China Sea, the Chinese Foreign Ministry said. Gemba described the atmosphere as “severe” at the meeting in which he emphasized Japan’s “maximum restraint” over the dispute, Kyodo News reported.

While neither side showed signs of compromise, the discussion contrasts with the cancellation of a series of bilateral events amid the worst diplomatic crisis since 2005. Nissan Motor Co. (7201) said today it’s halting production in China to reflect falling demand, and All Nippon Airways Co. said 40,000 seats have been canceled on its China flights.

“There was agreement to maintain lines of communication through working-level talks,” Japanese Chief Cabinet Secretary Osamu Fujimura told reporters today in Tokyo, adding that the meeting lasted about an hour. “There are no magic tricks in diplomacy. It all comes down to holding talks through various channels and at various levels.”

The talks took place after vice foreign ministers met yesterday in Beijing to discuss Japan’s purchase this month of the islands, known as Diaoyu in Chinese and Senkaku in Japanese.

Crisis Talks

Yang and Gemba last met on Sept. 9 at the Asia-Pacific Economic Cooperation Summit in Vladivostok, Russia, two days before Japan reached a deal to buy the islands from a private Japanese owner. Japanese Prime Minister Yoshihiko Noda and Chinese President Hu Jintao also met briefly at APEC.

“China will continue to take firm measures to safeguard its territorial integrity and sovereignty,” Yang told Gemba, according to the Chinese Foreign Ministry statement.

The crisis sparked protests in China that damaged operations for Japanese companies. Reservations for more than 40,000 seats on All Nippon Airways flights were canceled from September to November, Executive Vice President Osamu Shinobe told reporters in Tokyo today. Japan Airlines Co. (9201) had 15,500 cancellations as of Sept. 24.

Organizations in the two countries canceled or postponed a series of events, including plans to mark the 40th anniversary of diplomatic relations. China skipped an international disaster relief conference in Tokyo, Xinhua reported. It said Chinese leaders in the Japanese city of Yokohama announced they would cancel an annual National Day parade on Oct. 1.

Production Cuts

Nissan, the top Japanese seller of vehicles in China, said today its August output in China fell by 8.9 percent from a year earlier to 86,488 units. Chinese production dropped 18 percent to 67,625 vehicles at Toyota Motor Corp. (7203) and declined 10 percent at Honda Motor Co. Japanese autos will lose their lead this year over German nameplates for the first time since 2005, China’s Passenger Car Association estimates.

Nissan will suspend China production from Sept. 27 -- three days earlier than planned -- and resume output on Oct. 8 in view of the “current market situation,” company spokesman Chris Keeffe said today by telephone. Toyota said it’s suspending output from today until Oct. 8 in Guangzhou and Tianjin, and at its Sichuan FAW plant from Sept. 29.

Japanese carmakers, still recovering from natural disasters in Japan and Thailand last year, may face an even bigger financial toll from the protests in the world’s biggest automobile market, according to projections from China’s Passenger Car Association.

Ambassador’s Car

Thousands of people have taken part in anti-Japanese protests across cities across China over the island dispute. Protesters threw bottles and eggs at the Japanese embassy in Beijing this month, while demonstrators also caused minor damage to the official vehicle of U.S. Ambassador Gary Locke.

Japan’s main opposition Liberal Democratic Party today chose as its new leader former premier Shinzo Abe, who has called for building on the islands as a means of asserting the country’s sovereignty. Polls indicate the LDP may defeat the ruling Democratic Party of Japan in elections Noda must call by August, putting Abe in line to become prime minister again.

The Legislative Affairs Office of China’s State Council unveiled draft regulations yesterday that would raise the fine for failing to “demonstrate China’s complete territory” when creating maps of the region, Xinhua said. The fine, currently capped at 10,000 yuan ($1,585), would be raised to 100,000 yuan.

At the same time, Xinhua published a 5,200-word White Paper from China’s State Council Information Office outlining China’s claim to the islands, referring to documents dating to the Ming Dynasty in 1561.

“No matter what unilateral step Japan takes over Diaoyu Dao, it will not change the fact that Diaoyu Dao belongs to China,” the paper said, referring to the islands’ full Chinese name.

To contact the reporter on this story: Stuart Biggs in Tokyo at sbiggs3@bloomberg.net

To contact the editor responsible for this story: John Brinsley at jbrinsley@bloomberg.net

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